First Industrial Realty Trust, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The filing combines First Industrial Realty Trust, Inc. and its operating partnership, First Industrial, L.P. The company is an industrial-property REIT; at quarter-end it owned 468 properties in 21 states, comprising approximately 61.0 million square feet.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $100.3 million | $99.3 million | $298.9 million | $294.3 million |
| Net income | $31.5 million | $44.7 million | $115.4 million | $107.0 million |
| Basic EPS | $0.24 | $0.36 | $0.91 | $0.88 |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $151.0 million | $148.2 million |
| FFO available to common stockholders and participating securities | $51.3 million | $49.3 million | $146.2 million | $136.9 million |
At September 30, total assets were $3.13 billion and total liabilities were $1.46 billion. Debt carrying amounts were approximately $1.30 billion: $298.2 million mortgage loans, $544.4 million senior unsecured notes, $456.5 million term loans, and no balance on the unsecured credit facility. Cash and cash equivalents were $52.7 million, with $19.0 million of restricted cash. An additional $720.8 million was available under the credit facility.
Same-store average occupancy rose to 97.5% in Q3 from 95.7% a year earlier and was 97.2% for the first nine months versus 95.6%. Same-store NOI increased 6.8% in Q3 and 5.8% for the nine-month period. Nine-month leasing activity showed 21.6% straight-line rent growth on commenced new and renewal leases and 83.0% tenant retention for renewal leases.
Material changes and notable activity
- Q3 revenue grew 1.0%, but net income fell to $31.5 million from $44.7 million. Management attributed the earnings comparison in part to lower property-sale gains: $8.1 million in Q3 2018 versus $23.3 million in Q3 2017. Nine-month gains were $53.3 million, compared with $52.1 million.
- For the first nine months, revenue rose 1.6%; same-store revenue increased $13.0 million, supported by higher occupancy, rental rates, and tenant recoveries. Property expenses rose 3.1%, including higher same-store real estate taxes, snow removal, and insurance.
- Nine-month interest expense declined 13.4% to $37.8 million. The company cited a lower average interest rate, lower average debt outstanding, and higher capitalized interest.
- The company acquired six industrial properties totaling about 0.5 million square feet and land parcels during the nine months. It sold 34 industrial properties totaling about 1.7 million square feet and land parcels for $120.5 million gross proceeds.
- A 49%-owned Phoenix-area joint venture acquired approximately 532 developable acres for $49.0 million. The company contributed $25.2 million net to the joint venture during the period and accounts for its investment under the equity method.
- The company issued $300 million of private-placement notes at 3.86% and 3.96%, and raised $145.6 million net from a public offering of 4.8 million common shares. It repaid $157.8 million of mortgage debt. The quarterly dividend increased 3.6% to $0.2175 per share.
Outlook, risks, and unusual items
- No specific earnings or operating guidance was provided. Management expected to meet near-term and long-term liquidity needs through operating cash flow, selected asset sales, available credit, and possible debt or equity issuance, subject to markets and contractual limits.
- Management expected to repay or prepay $108.6 million of mortgage loans by September 30, 2019, principally using the credit facility and/or excess cash flow. It stated that covenant compliance was expected to continue for the remainder of 2018.
- Nine industrial properties totaling approximately 3.7 million square feet were under construction. Estimated total investment was $261.3 million, of which $127.5 million remained to be funded; actual completion costs could exceed estimates.
- All debt was fixed-rate or effectively fixed through interest-rate swaps at quarter-end. Management estimated that a 10% increase in relevant LIBOR rates would have increased nine-month interest expense by approximately $0.07 million based on average floating-rate debt; a 10% increase in fixed borrowing rates upon refinancing would have increased it by approximately $4.2 million.
- The filing identifies risks including economic and industrial-property market changes, tenant defaults or non-renewals, vacancy or rent pressure, construction costs and delays, capital-market access, interest rates, covenant compliance, competition, and environmental liabilities. Management reported no material change to previously disclosed risk factors and no material adverse effect expected from ordinary-course legal proceedings.
- Unusual or relevant items included a $2.8 million impairment charge in the first nine months tied to properties marketed for sale, $1.3 million of severance expense, and adoption of new revenue and cash-flow accounting standards without a material financial-statement impact. The company expected the January 2019 lease-accounting standard to reduce EPS/EPU by approximately $0.01 in the adoption year.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. Subsequent to quarter-end through October 25, the company acquired one property and one land parcel for approximately $16.6 million and sold one property and one land parcel for approximately $8.3 million.
Investor facts to verify
- Whether high same-store occupancy and rent growth continue, and how they translate into cash NOI and earnings.
- Debt maturities and refinancing plans, especially the $108.6 million anticipated mortgage repayments and $267.1 million scheduled principal payments in 2021.
- Development funding, lease-up progress, completion costs, and returns on the Phoenix joint venture investment.
- The effect of ongoing dispositions, acquisitions, and share issuance on recurring earnings, FFO per share, and leverage.
- Dividend coverage by recurring cash flow, distinguishing operating performance from gains on property sales and non-GAAP measures such as FFO.